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Egypt approves ‘capital’ gains tax for foreigners Govt says it is EGP 70 bln over budget on fuel subsidies

CAIRO, June 1, (RTRS): Egypt will collect capital gains tax from foreigners with each transaction, the country’s finance minister Hany Dimian said in a television interview late on Saturday. The interim government agreed to impose a new 10 percent capital gains tax on profits made on the stock market last week as part of its first phase of tax reforms which it expects to bring in 10 billion Egyptian pounds ($1.42 billion). The 10 percent tax will be imposed on cash dividends and on net capital gains that Egyptians make at the end of the tax year. But Dimian said foreigners would be taxed with each transaction. “For foreigners... I will (collect) transaction-by-transaction because they can carry out a transaction and leave,” he said on private Egyptian television channel CBC. “The expected amount to be collected from this tax will range between 3.5 billion pounds and 4.5 billion pounds.” Egypt’s stock index opened 5 percent lower on Sunday after the news of the new tax. Egypt is eager to encourage investment but is also trying to find additional sources of revenue after more than three years of economic and political turmoil since a popular uprising toppled autocrat Hosni Mubarak in 2011, deterring foreign investors and tourists.

Retroactive
Profits from the stock market are currently tax-free, and Dimian said the new tax will not be retroactive. Abdel Fattah el-Sisi, the former army chief who toppled the country’s first freely-elected president Mohamed Morsi last year, won a presidential election with more than 90 percent of the vote last week, according to provisional results.  Egypt said it would spend 70 billion pounds ($9.8 billion) more than budgeted on energy subsidies in the fiscal year ending June 30, in an indication of the crippling impact of the system on state finances. Interim Prime Minster Ibrahim Mahlab was quoted by state media late on Saturday as saying the bill would reach 170 billion Egyptian pounds. The latest finance ministry data showed the budgeted amount for petroleum subsidies at 99.6 billion pounds.

Officials had previously put this year’s spending on energy subsidies at 130 billion pounds. Egypt is expecting a budget deficit of 12 percent near year. Energy prices in Egypt are among the lowest in the world, and the cash-strapped government spends more than a fifth of its budget keeping them down. Successive governments have called for reform but none have dared push through big price rises for fear of stoking unrest. Artificially low prices for electricity, butane and fuel at filling stations provide little incentive for Egyptians to curb consumption, despite a fuel supply crisis that frequently causes blackouts. The prime minister said spending on education in the current fiscal year would be 26 billion Egyptian pounds, and on health 64 billion. Egypt’s new president-elect Abdel Fattah el-Sisi said little about subsidy reform during last month’s election campaign aside from assuring voters that reform must be gradual.

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